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Dynamic Noisy Signaling

Author

Listed:
  • Sander Heinsalu

Abstract

This article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern.

Suggested Citation

  • Sander Heinsalu, 2018. "Dynamic Noisy Signaling," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 225-249, May.
    • Handle: RePEc:aea:aejmic:v:10:y:2018:i:2:p:225-49
    Note: DOI: 10.1257/mic.20160336
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    References listed on IDEAS

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    1. Mc Lennan, Andrew & Monteiro, P. K. & Tourky, Rabee, 2014. "On uniqueness of equilibrium in the Kyle Model," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 761, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    3. Alejandro Badel & Mark Huggett, 2014. "Interpreting Life Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 613-629, October.
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    Citations

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    Cited by:

    1. Shuhua Si & Yangfan Zhou, 2026. "Pitfall of Precision in Noisy Signaling," Papers 2605.13039, arXiv.org.
    2. Gonzalo Cisternas & Aaron Kolb, 2020. "Signaling with Private Monitoring," Papers 2007.15514, arXiv.org.
    3. Starkov, Egor, 2023. "Only time will tell: Credible dynamic signaling," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    4. Sebastian Gryglewicz & Aaron Kolb, 2025. "Strategic Pricing in Volatile Markets," Operations Research, INFORMS, vol. 73(1), pages 444-460, January.
    5. Ishida, Junichiro & Suen, Wing, 2024. "Pecuniary emulation and invidious distinction: Signaling under behavioral diversity," Games and Economic Behavior, Elsevier, vol. 147(C), pages 449-459.
    6. Jungbauer, Thomas & Waldman, Michael, 2025. "Actions and signals," Journal of Economic Theory, Elsevier, vol. 230(C).
    7. Dilmé, Francesc, 2019. "Dynamic quality signaling with hidden actions," Games and Economic Behavior, Elsevier, vol. 113(C), pages 116-136.
    8. Søren Johansen & Anders Ryghn Swensen, 2021. "Adjustment coefficients and exact rational expectations in cointegrated vector autoregressive models," CREATES Research Papers 2021-10, Department of Economics and Business Economics, Aarhus University.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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